July 04, 2022

Daily Report 04/07/2022

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The final reading for the UK PMI manufacturing index was revised lower to a 2-year low of 52.8 from the flash reading of 53.4. The new orders component dipped into contraction territory for the first time since January 2021 and there was a slight easing of inflation pressures. Mortgage approvals were little changed at 66,160 for May and above consensus forecasts of 64,000. There was an overall increase in bank lending of £7.4bn with a limited increase in consumer credit. The data failed to provide dollar support and overall sentiment remained notably negative on a lack of confidence in the outlook and doubts over bank tightening. CFTC data recorded a further net reduction in short Sterling positions to 53.000 contracts from 63,000 the previous week. Underlying Sterling sentiment remained weak, especially with political tensions

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The final Euro-Zone PMI manufacturing index was revised marginally higher to 52.1 from the flash reading of 52.0, but still the lowest reading since August 2020. Pricing pressures remained strong, but there was a slight easing of inflationary pressure within the survey. The headline Euro-Zone CPI inflation rate increased to 8.6% for June from 8.1% the previous month which was slightly above consensus forecasts of 8.5% and a fresh record high. The underlying rate edged lower to 3.7% from 3.8% and below market expectations of 3.9%. The Euro was unable to draw any support from the higher than expected headline reading. ECB council member Panetta stated that any rate hike above zero will depend on the data and also insisted that policy tightening should be gradual. The comments illustrated concerns within Italy over the implications of ECB rate hikes.

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The US ISM manufacturing index declined to 53.0 for June from 56.1 for May and below consensus forecasts of 54.5. There was faster growth in production, but the new orders component dipped into contraction. Manufacturing employment declined for the second successive month while there was a limited net easing of cost pressures with the prices index retreating to a 4-month low. The data maintained reservations over the US outlook and the possibility that inflation pressure had peaked and there was volatile dollar trading after the release. Although lower yields undermined the US currency, there was also an element of defensive demand.

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